Tax Efficient Balanced Strategy Report (Q4 2025)
All prices, returns and portfolio weights are as of market close on September 30, 2025, unless otherwise indicated.
Inaugural tax efficient portfolio*
- In our first ‘Tax Efficient’ Portfolio, we are following the same fundamental rationale as our ‘Balanced Portfolio’ with a few caveats.
- First, we are prioritizing capital gains over income. This means focusing more on discount bonds in the fixed income sleeve of our portfolio while also continuing to prioritize shorter duration products.
- As an example, we have removed ZBI and replaced it with ZCDB (BMO Corporate Discount Bond ETF) at a lower weight.
- We are also increasing the weight of ZDB in this portfolio to 10% (from 5% in our balanced fund).
- Second, we are prioritizing Canadian and U.S. underlying holdings over international investments. That means a greater weight for core exposures in ZCN and ZUQ. At the same time, we are removing ZIQ and ZEM.
- For the tactical exposures, we have elected to go with a covered call strategy for Tech ZWT (BMO Covered Call Technology ETF) as well as a covered call strategy for Utilities ZWU (BMO Covered Call Utilities ETF). Both allow us to earn tax efficient income in sectors that we think should still continue to perform.
- Additionally, both of the aforementioned strategies will help to make up for the relatively lower income that comes with utilizing discount bond ETFs in the fixed income sleeve.
- We are also removing our exposure to ZGI (BMO Global Infrastructure Index ETF) and reallocating that to ZLSC (BMO Long Short Canadian Equity ETF).
* Tax Efficient: as compared to an investment that generates an equivalent amount of interest income. For more please see notes on tax characteristics at the bottom of this document.
Holdings
Ticker |
Name |
Weight |
Country |
10.00% |
Canada |
||
5.00% |
Canada |
||
5.00% |
U.S. |
||
25.00% |
U.S. |
||
25.00% |
Canada |
||
7.00% |
U.S. |
||
7.00% |
Canada/U.S. |
||
6.00% |
U.S. |
||
10.00% |
Canada |
||
Total |
100% |
Portfolio
| Ticker | ETF Name | Sector Positioning | Price | Management Fee | Weight (%) | 90-Day Vol | Volatility Contribution | Annualized Distribution Yield* | Weighted Average Yield to Maturity | Yield/Vol | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Fixed Income | |||||||||||
| ZDB | BMO Discount Bond Index ETF | Fixed Income | Core | $15.24 | 0.09% | 10.0% | 4.08% | 5.16% | 2.36% | 3.25% | 0.58 |
| ZCDB | BMO Corporate Discount Bond ETF | Fixed Income | Tactical | $31.51 | 0.15% | 5.0% | 3.10% | 1.96% | 1.88% | 3.09% | 0.61 |
| ZUS.U | BMO Ultra Short-Term US Bond ETF (USD Units) | Fixed Income | Tactical | $46.83 | 0.15% | 5.0% | 1.77% | 1.12% | 4.62% | 4.35% | 2.62 |
| Total Fixed Income | 20.0% | 8.24% | |||||||||
| Equities | |||||||||||
| ZUQ | BMO MSCI USA High Quality Index ETF | Equity | Core | $95.75 | 0.30% | 25.00% | 9.24% | 29.25% | 0.47% | 0.05 | |
| ZCN | BMO S&P/TSX Capped Composite Index ETF | Equity | Core | $40.25 | 0.05% | 25.00% | 7.70% | 24.38% | 2.30% | 0.30 | |
| ZWT | BMO Covered Call Technology ETF | Equity | Tactical | $58.91 | 0.65% | 7.00% | 12.98% | 11.51% | 4.51% | 0.35 | |
| ZWU | BMO Covered Call Utilities ETF | Equity | Tactical | $11.50 | 0.65% | 7.00% | 6.60% | 5.85% | 7.31% | 1.11 | |
| Total Equity | 64.0% | 70.99% | |||||||||
| Non-Traditional Hybrids | |||||||||||
| ZLSC | BMO Long Short Canadian Equity ETF | Hybrid | Tactical | $41.64 | 0.65% | 6.00% | 6.00% | 4.56% | 1.53% | 0.26 | |
| ZWGD | BMO Covered Call Spread Gold Bullion ETF | Hybrid | Tactical | $34.10 | 0.65% | 10.00% | 12.81% | 16.21% | 0.00 | ||
| Total Alternatives | 16.00% | 20.77% | |||||||||
| Total Cash | 0.00% | 0.00% | |||||||||
| Portfolio | 0.30% | 100.0% | 7.90% | 100% | 2.17% | 0.28 | |||||
As of September 30, 2025. Model portfolio for illustrative purposes only. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. These are not recommendations to buy or sell any particular security. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Performance (%)
Ticker |
YTD |
1 mo |
3 mo |
6 mo |
1 Y |
3 Y |
5 Y |
10 Y |
Since Inception |
Inception Date |
23.85% |
5.39% |
12.47% |
22.03% |
28.50% |
21.22% |
16.62% |
11.79% |
9.36% |
2009-05-29 |
|
15.31% |
2.40% |
6.11% |
6.71% |
10.81% |
8.70% |
7.69% |
6.23% |
5.22% |
2011-10-20 |
|
7.69% |
4.70% |
8.36% |
10.91% |
13.61% |
26.95% |
15.83% |
16.21% |
16.52% |
2014-11-05 |
|
2.72% |
1.82% |
1.32% |
0.69% |
2.58% |
4.53% |
-0.28% |
1.87% |
2.36% |
2014-02-10 |
|
15.44% |
6.84% |
11.82% |
29.23% |
31.41% |
42.87% |
— |
— |
20.91% |
2021-01-20 |
|
14.91% |
1.47% |
4.02% |
15.20% |
20.41% |
— |
— |
— |
20.56% |
2023-09-27 |
|
3.57% |
0.39% |
1.20% |
2.31% |
4.79% |
5.13% |
2.99% |
— |
2.70% |
2019-02-12 |
|
4.46% |
1.01% |
1.76% |
2.71% |
5.37% |
6.60% |
— |
— |
3.50% |
2022-01-24 |
|
Returns are not available as there is less than one year’s performance data. |
2025-05-22 |
|||||||||
Bloomberg, as of September 30, 2025.
Sector exposure
Source: BMO Global Asset Management. Model portfolio for illustrative purposes only. As of September 30, 2025.
Fixed Income breakdown
Federal |
20.9% |
Weighted Average Term |
4.73 |
Provincial |
16.0% |
Weighted Average Duration |
3.61 |
Corporate |
12.4% |
Weighted Average Coupon (%) |
1.47 |
Municipal |
0.7% |
Annualized Dist. Yield (%) |
2.34 |
Weighted Average Yield to Maturity (%) |
BMO Global Asset Management, as of September 30, 2025. Model portfolio for illustrative purposes only.
Notes on tax characteristics:
- The BMO Discount Bond ETF suite (ZDB, ZCDB, ZSDB) is designed to minimize interest income by buying bonds with lower coupons that are trading at a discount to par value, such that a portion of future returns will come from price appreciation and will be treated as a capital gain instead of interest income. Please see here for a breakdown of how the suite can help investors reduce taxable interest income relative to traditional bond funds with similar exposures.
- ZUS.U: Average coupon is far below Yield-To-Maturity, or YTM (2.07% average coupon, which is lower than the yield to maturity of 4.44% as of Sept 30, 2025, indicating pull-to-par† opportunity and minimization of interest income versus other bond ETFs).
ZUQ:
- Dividends from U.S. companies are subject to U.S. withholding tax. Not only do we like the MSCI USA High Quality basket from an investment outlook standpoint, but, because of its screens, it has a lower dividend payout rate, and therefore a lower rate of U.S. withholding tax exposure versus U.S. equity exposures that pay out a higher dividend distribution rate.
ZCN:
- As a basket of Canadian companies, the ETF’s distribution is taxed as Canadian eligible dividends and is entitled to the advantageous Canadian dividend gross up and tax credit system.
ZWT:
- The basket is composed of U.S. large cap technology names, which pay minimal dividends (foreign income exposed to U.S. withholding tax). The ETF’s covered call strategy sells call options in order to collect monthly cash flow; this portion is taxed as capital gains, which are exposed to tax at a lower rate than interest income or foreign income.
- These covered call strategies sell call options in order to collect monthly cash flow; this portion of the yield is taxed as capital gains and/or return of capital, which are exposed to tax at a lower rate versus interest income or foreign income.
†Pull to par is the movement of a bond’s price toward its face value as it approaches its maturity date. Premium bonds, which trade at a higher price than their face (par) value, will decrease in price as they approach maturity. Discount bonds, which trade at a lower price than their par value, will increase in price as they approach maturity.
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The portfolio holdings and asset allocations are subject to change without notice and individual holdings only represent a small percentage of portfolio holdings. They are not recommendations to buy or sell any particular security.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent prospectus.
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